Weekly Market Update Monday 4th September 2023
The week appeared to be one in which bad news for the economy was considered good news for stock prices, given the interest rate implications. On Tuesday, the S&P 500 Index marked its most substantial single-day increase since June. This surge followed news that job openings unexpectedly fell by 338,000 in July and hit their lowest level since March 2001.
US non-farm payrolls expanded by 187,000, modestly surpassing the consensus estimate of a 170,000 increase. However, a cumulative downward revision of 110,000 for the preceding two months suggested a notable deceleration in hiring momentum. In August, the unemployment rate rose to 3.8% from July's 3.5%, primarily due to a substantial estimated addition of 736,000 to the labour force. Surprisingly, according to the household survey, employment increased by 222,000 despite a pronounced uptick in the unemployment rate.
In response to cooling labour market conditions, financial markets continued to anticipate a pause in the Federal Reserve's interest rate hikes. The market's pricing of potential rate cuts was extended to May 2024, with an increased likelihood of a cut in March following the release of softer US jobs data.
Across the board, major US large-cap stock indexes reported weekly gains, with the NASDAQ and S&P 500 leading the way, up by 3.2% and 2.5%, respectively, while the Dow Jones gained 1.4%. The Europe 600 Index closed 1.49% higher, buoyed by hopes of an impending peak in interest rates, supported by estimates indicating that the core inflation rate in the eurozone remained steady at 5.3% in August, slightly lower than July's figure. In the UK, the FTSE 100 recorded a positive return of 1.79%. Japan's stock markets also saw gains during the week, with the Nikkei 225 Index rising by 3.4%. Chinese stocks followed suit, boosted by a series of government stimulus measures aimed at revitalizing the economy.
After surging above 5.00% the previous week, the yield on the 2-year US Treasury bond retreated. Diminishing medium-term expectations for rate hikes triggered a rally in 2-year notes, bringing their yield to approximately 4.89% by the end of the week, down from the previous week's closing yield of 5.06%, which had nearly reached a year-to-date high set in early March. In the UK, softer economic data pushed the yield on UK 10-year sovereign bonds to near one-month lows, ending the week at 4.4%. Sovereign bond yields across the European Union also saw declines throughout the week. Meanwhile, UK house prices experienced a notable 5.3% decline in August, marking the largest drop since July 2009.
In the realm of commodities, oil prices surged during the week, with WTI prices climbing by 7.6%, driven by positive stimulus announcements from China. Additionally, gold posted a 1.5% positive return.